Is Token Based Licensing a Utility Model?

By Alan Swahn

A true utility model has attributes that include:

• A consumption rating (e.g. watts)
• Customers pay for what is consumed
• Customers don’t pay in advance
• Once consumed it can’t be reused
• No overage denials of service
• No contract term
• No cost to move to another provider
• Metering: consumption x time (e.g. kilowatt-hours⁴)
• Rate charged (e.g. $.15/kWh)

Electricity is the poster child of utility models, where all the attributes above apply. Appliances consume power. Appliances have a consumption rating, such as a light bulb that is rated at 100 watts, a heater 1200 watts, and dryer 4800 watts (example below). You have an electric meter that keeps track of how many watts are used per hour (metering). Residential customers pay for power used x time from the utility provider—the rate—e.g. $0.15 per kilowatt hour. Customers only pay for what they use¹. In the example below, 15 kilowatts hours are consumed by 3 appliances (when turned on) that costs the consumer $2.25 (Table 1).

Table 1

Now that we have a utility model baseline, let’s look at token based [concurrent] licensing using IBM applications as an example. Appliances consume watts and software applications consume tokens (Table 2).

Table 2

So far it looks promising. Let’s run the same scenario as Table 1, substituting software applications for appliances and tokens for kilowatts with 6000 tokens having been prepurchased (Table 3).

Table 3

The result looks quite a bit different. We didn’t have to prepurchase anything from the electric company. There are application denials which violate the utility premise. Tokens are put back for future use after being consumed, another infringement on the utility premise. The missing element is time. There are no token-hours, just tokens. In our electricity example, the rate charged was $.15 per kilowatt-hour. By comparison, tokens are essentially checked out and checked back into a pool. There is no rate charged for tokens. Table 4 summaries the model differences.

Table 4

Summary:

Until time is considered, token licensing can’t be considered a utility model, but it is a convenient purchasing model for customers—buy a bucket of tokens to be used across multiple applications. But since different applications consume different numbers of tokens, there still needs to be a watchful eye on who is entitled to use specific applications. That's where a software license management and license optimization system comes into play.

References/Notes:

1. Transport charges are extra.
2. Token Licensing Concepts and Implementations
3. Implementation, training, support, conversion costs.

Kilo means X 1000; 2 kWh is 2000 watts x 1 hour.

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See also our ECM blog: What the Heck is a Token Software License Model?